[February 14, 2014]BEIJING (Reuters) — China's consumer
inflation hugged a seven-month low in January and showed no signs of
accelerating anytime soon, a consolation for the government which
may need to loosen policy should economic growth founder.

But in a sign the world's No. 2 economy faces continued headwinds,
producer prices fell again in January in an uninterrupted decline
that has lasted for nearly two years. Prices of raw materials and
means of production all dropped across the board.

Producer prices slid for the 23rd consecutive month by 1.6 percent
from a year ago, the National Bureau of Statistics said on Friday.

Consumer prices, on the other hand, were up 2.5 percent, level with
December and slightly above market expectations.

"Inflation is not a concern," said Zhu Haibin, a JPMorgan economist
in Hong Kong. "The producer price index is probably a bigger concern
for policymakers."

Some analysts say excess factory capacity in sectors such as steel,
cement, aluminum and glass has dragged on China's production prices
in the last two years. Others go further by saying that falling
producer inflation is a sign of soft final demand.

ANZ Bank said on Friday that weak producer prices suggested that
China is fighting soft demand for its factory goods — a trend it
said is supported by China's falling commodity price index, which is
at a seven-month low.

"If the Chinese authorities keep the (economic) growth target in
2014 unchanged at 7.5 percent, the government will have to roll out
stimulus policy before June," ANZ said.

Beijing has not announced its 2014 growth target, and some
economists suspect it has no plans to do so. At the same time, a
growing group of analysts believe that government stimulus is needed
if China keeps its growth target at 7.5 percent this year.

No one thinks China will provide as much fiscal support as it did
after the 2008 Great Financial Crisis when the government spent 1.4
trillion yuan ($231 billion) to foster growth. Rather, experts
believe smaller-scale pump priming such as fast-forwarding of state
investment — which the government did last year — may be on the
cards.

China's economy is expected to grow 7.4 percent this year, a Reuters
poll showed in January, better than any other major economy in the
world but still its slackest pace in 14 years.

In the mean time, interest rates are expected to stay unchanged
until the end of 2015 as annual inflation runs at a rate of around 3
percent this year and next.

Economists polled by Reuters had expected consumer inflation of 2.3
percent in January and factory-gate prices to fall 1.7 percent.

China surprised markets earlier this week with a thumping trade
performance in January as import growth hit a six-month high,
drawing some skepticism about the data but still allaying fears of a
deepening economic malaise.